Theranos’ triple whammy: CMS, DOJ and SEC

click to enlarge Shocked, shocked! Theranos CEO Elizabeth Holmes is a bit more wide-eyed than ever. On the popular morning (breakfast=UK) program Today, interviewed by the oddly ‘browed Maria Shriver and sans the usual Steve Jobs-channeling black turtleneck, she stated she was ‘devastated’ that they didn’t catch the lab testing issues faster. On CNBC, she was mildly defiant and justifying:

“I know what we’ve built and I know what we’ve created and I know what it means to people and it is a change that needs to happen in the world”

(Yes, it does mean a lot to people when their test results are wrong or not reliable. And the disappointment of those of us who’d like simple, less expensive testing that works.)

Last week CMS proposed (but not yet imposed) sanctions that include banning Ms Holmes and president Sunny Balwani from running or owning labs for two years, and removing licenses from Theranos’ labs in Newark and Palo Alto California. Wall Street Journal. The effect would be to remove them from the company. Yesterday, Federal prosecutors started the process of discovery by subpoenaing Walgreens Boots Alliance, their former customer, and the New York State Department of Health seeking broad information on how Theranos described its technologies to gain Walgreens’ business and NYS licensure. That information may also have misled government officials.

The third whammy is the Securities and Exchange Commission (SEC) looking into a parallel claim–that deceptive claims were made to investors. No one at the above organizations is commenting to the Wall Street Journal, which broke the story earlier this year. While the company has $700 million in the bank, the famed $9 billion Unicorn Valuation is moving towards $9.

Ed. note: If the WSJ articles are paywalled, search on the headlines “Regulators Propose Banning Theranos Founder Elizabeth Holmes for at Least Two Years” and “Theranos Is Subject of Criminal Probe by U.S.” to get around them. Alternatively, see TechCrunch and MedCityNews, which is playing the World’s Smallest Violin about this.

Comments

A commenter who apparently wished to remain anonymous (the wrong way–see below) brought up some critical points to this story which may be shared by some Readers.

First, we have been tracking the Theranos story for some time. Please see this link for all of our coverage back to October 2013. We noted in 2014 that they were part of Dr Eric Topol’s ‘Doctorless Patient’ vision and in August 2015 as they entered the market with Walgreens. We admired the objective and personally waited to see the concept of individualized, easy, low cost blood testing spread, with some concerns on how individuals could access interpretation of that data–consistent with our concerns on genetic testing, represented by 23andme.

Second, every article we’ve published about Theranos’ difficulties since October 2015 has been extensively linked back to major coverage by publications such as the Wall Street Journal, Wired, CNBC, Forbes, TechCrunch, Bloomberg, BioSpace, FierceHealthIT and MedCityNews. These describe multiple CMS lab inspections over two years, which showed that the company failed its own quality controls with Edison as well as accuracy comparisons to standard lab testing (proficiency testing), and–somewhat overlooked–their lack of FDA clearance of their nanotainers. By October, their proprietary testing was being used in only 1 of 200 samples, because they voluntarily cut back their fingerprick nanotainer testing to their one FDA-cleared test for herpes.

A private entity, the Icahn Institute for Genomics and Multiscale Biology, conducted its own accuracy survey of Theranos’ nanotainer testing only, and came to similar conclusions published in the Journal of Clinical Investigation 28 March. It pointed out the unique problems with Theranos’ methodology, but also the problems that labs have in general with variability of results. There is much more in the Tech Insider article which deserves a careful read. The conclusion this Editor drew was that there are problems inherent in low volume blood testing (nanotainers) but that with further research and reaching out to the scientific community to further validate and refine their methodology, it would actually be likely that Theranos could overcome them.

Quoting the commenter: “What does it matter if they hyped technology they aren’t using (nanotainers or Edison).”
It matters quite substantially if you are an investor in the company amounting to hundreds of millions of dollars, and you have invested in the Unique Selling Proposition (USP) of this unique technology with an intent to profit from your investment down the road! There is a small matter of US securities law regulating what you can say to attract investors (see above on the SEC and Federal investigations). In this Editor’s opinion–and we are a website of news and opinion (see sidebar)–Theranos became so hyped–and so overvalued–that in the matter of perception of healthcare technology, that a Big Fail here in the long run will injure the very reputation of innovation — and scare away investment.

Why was this comment not published? It attempted to be anonymous and we have certain policies pertaining to this (see here). It also used a spoof address, which was caught by our spam filter. However, it did bring up good points which are addressed above. And regarding this Editor’s background, she is not a researcher nor experienced in clinical trials, but as a marketer, I’ve had a lot of experience in using information and claims properly, legally and ethically–and the perils you and the company you work for will face if you do not. The shame of this all is that Theranos may be a poster child in what happens when that care is not taken. Or perhaps, when those cautions are flouted egregiously.

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